Richard Stuchberry, senior portfolio manager, Wellington-Altus Private Wealth
FOCUS: North American large caps and global ADRs
MARKET OUTLOOK:
The biggest question investors are asking right now is: “Is it over yet?” While the answer is no, we believe we’re almost there — and that we may have already hit the bottom.
In 2022, we’ve had three major capitulations: One in January, one in February and one in June. We don’t anticipate that we will experience the kind of “textbook bottom” that many investors find themselves bracing for. We believe the downturn we’re experiencing can best be described as a process rather than as a moment — and by all accounts, the process is well underway.
Investors are looking for a clear signal to go higher. At The Stuchberry Group, we believe this signal will come from inflation and the Federal Reserve. The moves that have occurred so far this year are incredible, and the move off the bottom — which is the hardest one to do — we believe has been done. This signals that we are on our way to a new normal.
The chart below showcases inflation in blue, 10-year bonds in white and the Federal funds rate in orange. As the chart demonstrates, the drastic increase in interest rates (in an attempt to control inflation) is well underway. We believe we are at least halfway, if not further to the finish line. It is at this point that complete asset prices should stabilize. Always remember: all assets are priced relative to the risk-free rate, and when that rate changes, asset prices change. This process can be described similarly to planets rotating around the sun.
While markets continue to struggle, we still hold large cash positions and have trickled some money back into the markets.
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TOP PICKS:
Brookfield Renewable Partners (BEP.UN TSX)
It is one of the largest pure-play renewable power investments in the world. It has a solid balance sheet, a strong backer in the Brookfield parent, long-term power agreements and consistent cash flow make it an annual dividend grower. This is a wonderful ESG investment.
It has declined almost 20 per cent from its high in 2022, despite continuing to post solid earnings and increasing the dividend by eight per cent. It is clear the market wants to price in a housing challenge or correction and even a recession, but we think it has yield support and growth above the sector.
It is amongst a class of its own in terms of innovative companies. They develop GPUs necessary for the future of AI and other sectors of the future economy. They have a healthy balance sheet, good future growth over the medium and longer term, and have had a significant contraction in valuation. Over the last year revenue growth exceeded 50 per cent a year, and its valuation was high to reflect this high growth. We believe the future growth will offset valuation contraction going forward as Nvidia is a key player in the new economy.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BEP.UN TSX | Y | Y | Y |
| RY TSX | Y | Y | Y |
| NVDA NASD | Y | Y | Y |
PAST PICKS: January 24, 2022
Amazon (AMZN NASD)
- Then: $2890.88
- Now: $114.74 (20-1 stock split June 6th , 2022)
- Return: -21%
- Total Return: -21%
RH (RH NYSE)
- Then: $407.16
- Now: $247.28
- Return: -39%
- Total Return: -39%
Walt Disney (DIS NYSE)
- Then: $137.46
- Now: $96.39
- Return: -30%
- Total Return: -30%
Total Return Average: -30%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AMZN NASD | Y | Y | Y |
| RH NYSE | Y | Y | Y |
| DIS NYSE | Y | Y | Y |
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